Peter Martin, Matt Wade

The Australian dollar has hit a new high for the year and financial markets are betting on higher interest rates after a shock unemployment result suggested the jobs market had turned the corner.

The official figures show Australia's unemployment rate peaked at 6.1 per cent in February and dived to 5.8 per cent last month, making the most recent Treasury forecast of 6.25 per cent look too pessimistic.

Employment numbers in NSW jumped by 16,300 last month, slashing the state's seasonally adjusted unemployment rate from 5.7 per cent to 5.3 per cent. That was the second lowest unemployment rate in the nation after Western Australia, and half a percentage point below the national average.

"NSW is back at the top of the leader board, creating the most jobs in the country last month," Treasurer Mike Baird said.

Advertisement

The unemployment rate among males in NSW fell to just 4.8 per cent, seasonally adjusted, well below the rate of 5.8 per cent for females.

Australia gained 84,000 jobs in the six months since September, after gaining only 38,000 in the previous six months. Most of the new jobs are part-time.

Youth employment is shrinking. The figures show 20,000 fewer teenagers were employed last month than a year ago. In the previous year, youth employment had remained steady.

If correct, the Bureau of Statistics estimate of national unemployment is good news for the federal budget, and will allow the government to factor in higher economic growth and higher tax revenue.

But there are reasons to be cautious.

The bureau is changing the way it conducts the employment survey. Previously, it had one of the highest response rates in the world - between 95 per cent and 97 per cent of those answering the questions in the survey.

The changes cut the response rate to 93 per cent last month, a record low.

The February and March surveys have each produced odd results. Last month's survey showed South Australia's unemployment rate rose from 6.7 per cent to 7.1 per cent, a 12-year high. The February survey showed Western Australia's rate jumped from 5.1 per cent to 5.9 per cent, an 11-year high. The West Australian figure dived to 4.9 per cent last month.

Employment Minister Eric Abetz said the employment news was encouraging but there was more to be done.

"The fact that we still have 5.8 per cent unemployment clearly sends a message to the Senate that we have to repeal the carbon tax and the mining tax, get rid of green and red tape, and reinstitute the Australian Building and Construction Commission," he said.

The news pushed the Australian dollar up above US94¢ for the first time in six months as traders factored in an increased likelihood of higher interest rates. The dollar closed at US94.33¢ in Sydney on Thursday, up from US93.62¢ on Wednesday.

BT Financial chief economist Chris Caton summed up the mood of the traders when he tweeted: "Another strong labour-market report. Sayonara rate cuts; hello more upward pressure on the $A".

Betting on the futures market all but eliminated the implied probability of a further interest rate cut. The market is pricing in an increasing likelihood of a rate rise from November as the Reserve Bank attempts to restrain a soaring housing market. The first rise is expected in June 2015.